Considering the demand of power network for the on-line monitoring of the status of transformer winding, this paper proposes a novel method of on-line monitoring of windings deformation of transformer. By online measuring the voltage and current of the primary and secondary side under two different loads, we get the short circuit reactance value, which gives an index to the condition of the transformer windings deformation. The outstanding advantage of this method lies in it needs no no-load zero adjustment and is free from the influence of exciting current changes as well as the influences of the network voltage fluctuation, which also possesses high accuracy. With this method applied in distribution transformers of different capacity, the simulation result indicates that it can on-line measure the short circuit reactance value of both normal transformers and different degrees of deformation fault transformers with great accuracy and effectiveness so as to online monitor the deformation fault of the distribution transformer winding. Based on the characteristics of this method, this paper designs the indispensable data acquisition module and data analysis module for realizing the short circuit reactance on-line monitoring.